DALLAS — Could aggressive debt collectors be winning their war on consumers?
Regulators are cracking down like never before, but the howls about collection abuses just get louder.
In 2014, the Federal Trade Commission barred 47 companies and individuals from the business, while the U.S. Consumer Financial Protection Bureau collected $13 million in fines. The two agencies made collectors give back $700 million to consumers who were the target of illegal collection practices, according to the CFPB’s annual report on collection enforcement.
But all that consumer protection didn’t seem to deter collection abuses: Complaints keep going up and up. In 2014 consumers made 281,000 complaints about collectors to the Federal Trade Commission’s Consumer Sentinel system, up about 11 percent. Another 88,300 people filed collection complaints at the CFPB.
“We continue to receive more complaints about debt collection than any other industry,” said Christopher Koegel, the FTC’s enforcer of debt collection rules. “And our experience shows this is just the tip of the iceberg.” For every consumer who makes a complaint, several others suffer aggressive tactics in fearful silence.
Koegel made that less-than-rosy assessment at a meeting Tuesday between regulators and collection industry officials in Dallas. The “Debt Collection Dialogue” event was billed as a “conversation between government and business.”
The dialogue is part of the preparation for a long-anticipated regulation by the CFPB. The new rules will update the playbook for U.S. debt collectors for the first time since the Fair Debt Collection Practices Act was signed into law by then-President Jimmy Carter in 1978. The agency has been working on the new reg since 2013.
But will new rules make a dent in abuses? The worst violations are coming from collectors and outright scammers who are ignoring the rules already in place. Without significantly stiffer penalties, it’s difficult to see how new rules will make these nogoodniks straighten up and fly right.
“There are collectors who are not flirting with the line — they’re leaping over it, or don’t seem to know it exists,” Koegel said.
“Phantom” debt collection is the new and growing problem in the collection world. Nefarious collectors can bring in money on debts they don’t own, or even ones they’ve fabricated, using people’s identifying details. When callers have your birth date and Social Security number as well as plausible-sounding details about a debt you supposedly owe, their threats of court or even jail time are difficult to shrug off.
To thwart information-based scams, tighter data security is one of Koegel’s top three priorities for fighting debt collection abuses. Tighter security begins with an agency’s own workers. Koegel recounted a visit to a collection office north of Baltimore where collectors put their cellphones in lockers before going to their desks, where cameras recorded their actions. The measures were designed to stop workers from taking debtors’ confidential information from the building.
“I recognize these things cost money, but I think there is a return on investment, too,” he said. Legitimate collectors need to protect their trove of accounts, lest they find that a scammer using tougher tactics has already swooped in and collected consumers’ money. By the same token, debt brokers who buy and sell accounts need to take a hard look at the buyers and sellers they deal with.
Collectors have a different perspective on how the war on abuses is going. Robert Foehl, general counsel of collection industry association ACA International, said the number of complaints pales in comparison to the amount of debt — and debt collection — in the economy. About 14 percent of U.S. consumers have a debt in collection, according to federal studies of credit reports, amounting to tens of millions of people.
For an individual up against tough collectors, don’t expect rules or regulators to prevent problems. The best defense against phantom collectors — or just slipshod ones — is to ask questions. Who was the original creditor? What was the account number? When was the debt charged off, and what was the amount at that point? If a collector would rather threaten you with dire consequences than calmly answer these questions, hold tight to your checkbook.
Gregory Nodler, the CFPB’s top debt collection cop, told a story about how just having the right information can empower consumers. When he was a legal aid attorney, he often counseled people having difficulty with debt collectors. The first thing he told them was that the collector couldn’t send them to jail. At least once a debtor stood up and left after hearing that. “That’s all they needed,” he said.